Entering the Life Science Market – Part 1: Eight Things You Should Know

[1] that “The global pharmaceuticals, biotechnology, and life sciences industry generated…a compound annual growth rate (CAGR) of 6.7 percent between 2007 and 2011” – a period when much of the economy was in decline. But entering the life science market can be a challenge that is “non-trivial” (which in “sciencespeak” generally refers to a problem that is both hard and contains challenges that are unknown at present).

Entering the life science marketplace can be a challenge that is “non-trivial” (which in “science speak” generally refers to a problem that is both hard and contains challenges that are unknown at present).

I’ve seen many companies try to enter the life science market and fail to achieve the results they desire. So in this series of two white papers, I’ll take a look at some of the peculiarities of the life science sector, with a particular focus on marketing and sales, because the process of finding audiences, engaging with them, and converting them to customers is a critical success factor when entering any new market.

In this first white paper, I’ll cover some general trends in the industry and explore many of the factors that make it unique. In the next I’ll examine some of the various audiences that comprise the life science markets, looking at their general characteristics and exploring how they are affected by these trends. And throughout I’ll add in some thoughts about concretes steps you can take to increase your chances of success.

As you think about entering the life science market, you must understand (at a minimum) the following eight things.

1. Entering the life science market: The life sciences market is both deep and broad

Generally, the life sciences can be defined very broadly. While exact definitions differ, one common classification includes the following four sectors:

Biotech & Pharma

Medical Devices / Equipment / Products

Scientific Equipment

Life Science Research and Lab Services

You’ll notice that I’m not including healthcare delivery (such as hospitals, doctors offices, health insurance, health plans, and healthcare IT) in this list. Even though many analysts lump all these sectors together, the healthcare delivery sector is so large that I feel it deserves a separate classification. From a marketing standpoint, there are many reasons these sectors should be considered separately, including the fact that the regulations governing marketing and sales in each are quire distinct.

2. Entering the life science market: Much of the life science market is built around drug and medical device discovery and commercialization

Many of the smaller sectors in the life sciences are clustered around a core set of activities that are related to the process of discovering and commercializing drugs and medical devices, which consists of the following four basic phases:Much of the life science market is built around the four basic phases of discovery and commercialization of drugs and medical devices: discovery, pre-clinical, clinical and post-approval.

A. Discovery: Includes basic research. This used to happen inside large organizations, most notably the drug companies and academia. Now, in the United States this is mostly funded by grants from the National Institutes of Health (NIH) given to researchers working within academia. The end result is a basic discovery, such as an understanding of the mechanism of action for a disease, a “drugable” target inside the body that might be able to affect that mechanism of action, and/or a class of molecules that might be able to affect that target.

B. Preclinical development: The start of commercialization, when a compound is advanced to a state where it is ready to test with humans. This phase typically includes activities related to ADMET (absorption, distribution, metabolism, excretion and toxicology), which is how the body processes a substance.

C. Clinical testing: Testing the substance or device in humans. This typically happens in four clinical phases. There are significant regulatory hurdles to overcome before entering each new phase: Phase I generally tests for the safety of the drug/device by evaluating pharmacokinetic parameters and tolerance, generally in healthy volunteers. Phase II tests for efficacy and side effects in a small sample population. Phase III tests for safety and efficacy in larger populations. At this point, if safety and efficacy have been shown to meet certain standards, the regulatory agencies will approve the drug or device for sale and general use. The final phase—phase IV—monitors the real-world effectiveness of a drug during an observational, non-interventional trial in a naturalistic setting.

D. Post-clinical marketing: Activities here will focus on marketing the drug or device to patients and clinicians.

Each of these phases (discovery, pre-clinical, clinical, and post-approval) has its own peculiarities, buying triggers, challenges and opportunities. For example, the discovery phase is a prime target for companies making scientific equipment, which is often purchased by researchers inside large organizations, both academic and corporate. In contrast, the clinical research phase is a prime target for service organizations selling to pharmaceutical and medical-device development organizations of all sizes.

3. Entering the life science market: The sectors are growing, though at different rates

There are several key trends affecting growth in the life science sector. Drivers for growth include:

Some factors will shift growth from one sector to another within the life sciences. These include many factors; I’ll list just a few here:

The life science market is growing, but the growth is not uniform throughout all sectors.As a result, all of these sectors are expected to have different growth rates. For example, according to Deloitte, the biotech sector grew at 9.6 percent during 2012, and this sector is expected to grow at a similar rate over the next several years. Medical technology grew at 7 percent annually from 2005 to 2012, and is expected to grow at an annual rate of 4.5 percent through 2018. Pharmaceuticals grew 2.4 percent in 2012, and are expected
to grow at an annual rate of 5.3 percent through 2017.

4. Entering the life science market: A market built on two types of innovation

The life science market is built on innovations that generally arise from two different sources. First, there is innovation in the technology that is incorporated into a solution or offering. Examples of this type of innovation are:

There are two fundamentally different types of innovation driving the life science market: innovation in understanding the challenge (such as insight into the biological mechanism of disease) and innovation in developing the solution (such as technological advances). This type of technological innovation is common in many markets, such as high-tech chip manufacturing, where the spacing of transistors, and the process and materials being used, are shifting in almost every new generation of product. This type of innovation is related to a increasingly deep understanding of the solution.

There is another type of innovation, which relates to the fundamental understanding of the workings of the human body. Examples include:

This type of innovation is based on a deeper understanding of the challenge. In the life sciences, this deeper understanding of the challenges often involves exploration on the frontiers of biology.

While many other markets require keen insight into both the nature of the challenge and the solution, few other markets are built as strongly on a scientific foundation in both areas. For example, consider insurance, consumer packaged goods, transportation, clothing, cell phones, and publishing, just to name a few; few of these require constant advances in the science related to both the comprehension of the challenges and the development of advanced solutions. And while high-tech markets rely on an increasingly sophisticated understanding of the physics of materials to build ever-more-advanced solutions, the understanding of the challenge does not frequently involve the kind of deep-level science that the life science market does.

This double-barreled approach to innovation is part of what makes the life science market unique. While this emphasis on innovation can open up a steady stream of new opportunities, the products and services that fulfill these needs can have limited lifespans, and “me-too” products or services can face difficulty in getting traction.

5. Entering the life science market: a market that is splitting and recombining

The entire drug development market used to be vertically integrated. Individual drug companies would fund the process from the very beginning – hiring bench scientists who performed basic research – all the way through the ultimate manufacture, marketing, and sale of the final drug.

This is no longer the case. The drug (and to a lesser extent the medical-device) development process has fractured into an ecosystem that is composed of hundreds or thousands of smaller organizations, all focused on what is typically a tiny bit of the entire process. The life science market is undergoing significant restructuring, with mergers and acquisitions occurring frequently.With revenues and earnings under pressure, it makes sense for drug and device companies to outsource those parts of the process that are no longer core competencies,  just like the car manufacturers—who no longer manufacture airbags, or mufflers, or brake systems.

Of course, not all sectors of the life science market are participating in this grand de-integration. Manufacturers of scientific instrumentation and diagnostic equipment are examples from the beginning or the end of the drug development chain that are less affected by the shift of the drug development market away from a vertically integrated model.

At the same time, mergers and acquisitions will continue at unprecedented levels. Driven in part by large cash reserves accumulated during the recession, strong valuations, the broad selection of available targets, and low interest rates, M&A activity is expected to hit levels not seen since 2007.[2] According to a survey by KPMG late last year, the two sectors that were expected to experience the greatest M&A activity during 2014 were technology/media/telecommunications followed closely by healthcare/pharmaceuticals/life sciences.[3]

6. Entering the life science market: a mix of tightly and loosely regulated opportunities

The regulatory agencies act as a set of unique forces that control much of the behavior in the life sciences. Regulatory agencies can govern or mandate both work product and work process; they can control what is said publically and how it is said. But this is not true uniformly across the life sciences. Sectors that deal with activities late in the drug and medical-device discovery and development chain are often affected significantly in their work product, their work processes and what can be claimed in public statements. As you move back up this chain, the direct strictures imposed by regulatory agencies tend to loosen or disappear. However, there are often consequences that are indirect, but still significant.

Let’s examine one example: scientific instrumentation. This equipment is often used in basic research. Because this occurs early in the drug discovery process, regulatory influence is typically small. However, this equipment is also often used during the later stages of drug commercialization, such as during clinical trials. The data from these trials must meet standards imposed by regulatory agencies, so issues such as data security can strongly affect the manufacturers of such equipment.

Understanding the regulatory environment is very important. While some regulations are common across international borders, many are not. And, of course, regulations are constantly changing.

7. Entering the life science market: a market full of global competition and rising cost sensitivity

Much of the life science market is regulated. Regulatory agencies can control the work product, the work process, and even what can be claimed about the offering.Over the last decade, the life science market has grown increasingly global. Developing countries, such as the BRICK group (Brazil, Russia, India, China and Korea), now play increasingly important roles both as consumers of life science products and services, and as a source for competitors entering the market.

Global demand is being driven by the increasing number of consumers worldwide who expect first-world healthcare, pharmaceuticals and medical devices. And global competition is being driven both by the spread of technologically sophisticated economies abroad and by regulations. For example, in just the clinical research sector, regulatory agencies now often suggest—and in some cases require—that clinical trials be conducted in multiple countries.

8. Entering the life science market: different sectors have different tolerance for risk

Many sectors in the life sciences are extremely risk averse, but aversion to risk is not spread uniformly. While the sectors related to the development of scientific instrumentation, for instance, are more willing to take chances, much of the industry related to drug and medical device development is extremely risk averse. This aversion comes from several factors.

The tolerance for risk in the life sciences varies widely. Some sectors are extremely risk intolerant, which means that any innovation must come with proof to offset the perceived risk of trying something new.First, the odds of successfully introducing a new drug or medical device are extremely low. An article published in 2012 noted that “the number of new drugs approved per billion US dollars spent on R&D has halved roughly every 9 years since 1950, falling around 80‑fold in inflation-adjusted terms.”[4] The authors even codified this exponential decrease. In contrast with Moore’s law, which has long been known to describe “the expo­nential increase in the number of transistors that can be placed at a reasonable cost onto an integrated circuit,”[^3] the authors dubbed this Eroom’s law – “Moore,” spelled backwards.

Second, it is extremely time consuming to develop a drug or medical device; a decade or more is not uncommon. Third, it is extremely expensive to bring a drug or device successfully all the way through the process. Estimates vary, but range from $350 million to $5 billion.

Given the high failure rate, the enormous expense and the lengthy time required, it is no wonder that many segments of the market are risk averse. Decision makers don’t want to reduce their already low odds, so sticking with what works (even though it may not work very well) is the order of the day.

Finally, higher risk means greater uncertainty, which lowers the chances of regulatory approval. Regulatory bodies don’t like uncertainty. They like predictability. At the end of the drug approval process, clinical trials are large, expensive scientific experiments performed on patients. These experiments, like so many scientific experiments, try to identify, isolate and clarify the relationship between cause (the drug or device in question) and effect (a hoped-for improvement in a condition or disease). The more uncertainty there is in the results, or in the processes for drug manufacturing, or in the assays used to assess the human body’s response to the drug, or in any one of hundreds of other factors, the harder it is for regulators to make a reasoned judgment about the drug or device in question.

Entering the life science market: key conclusions

Let’s summarize some of the preceding points:

The life science market is broad, and different sectors will behave very differently, with different buying triggers, tolerance for risk, motivations, and cost-sensitivity. Individual sectors can be extremely competitive, with competitors located in different hemispheres. Regulations can have significant effects on work product, work process or marketing claims, and these regulations can shift quickly. The market expects constant innovation, but even so, some sectors face productivity that is in severe decline.

Entering the life science market can be full of uncertainty. Research can be a way to decrease your risk and narrow the gap between what you actually know and what you need to know. The result: greater confidence in pursuing a particular course of action in a market that is constantly changing.This is sobering, isn’t it? With this mix of factors, is it any wonder that many have tried to enter a particular life science sector and failed?

So how can you increase your chances of success? One answer is simple, but is often overlooked: research. This answer seems obvious, but many companies fail to do their homework. If you’re planning to enter the life science market, you should first begin by conducting secondary research (on markets, on competitors, on regulatory trends, etc.) or primary research (on audiences, buying triggers, etc.). Or both. While it is true that research can be expensive, without the insight that can be gained from research, your efforts might fail without the reasons ever being clear.

For example, research can help you pinpoint the sector and the stage of development you are trying to target. The more narrowly you can define your market, the more you can focus your marketing messages and the greater the chance that you’ll be able to reach your audiences effectively. Even if your offering is broadly applicable, it can be very useful to target a narrow sector at first; a narrow focus will bring clarity in your results—positive or negative.

The right kind of research can help you identify the expected growth rate in your chosen sector, important competitors, key regulations that might be imminent, and the tolerance for risk among your audiences, among other factors that will be important for your success.

As I’ve pointed out elsewhere, research needs to be conducted properly to yield useful results. In particular, the questions you ask and the way they are asked can spell the difference between useful insights and useless, expensive noise.

To conduct research properly, you’ve got to begin with an understanding of your audiences, so in the next white paper, I’ll look more closely at the characteristics of the life science buying population.

 

[1] 2013 Global Life Sciences outlook, published by Deloitte as 2013-Global-Life-Sciences-Sector-Report_FINAL.pdf. Available here: http://friendsofforgottenchildren.com/doc/pdf/download/deloitte__wsj__com–cfo–files–2013–02–2013-Global-Life-Sciences-Sector-Report_FINAL.pdf

[2] http://www.businessinsider.com/r-global-ma-at-seven-year-high-as-big-corporate-deals-return-2014-30

[3] http://www.kpmg.com/us/en/issuesandinsights/articlespublications/press-releases/pages/strong-ma-market-expected-in-2014.aspx

[4] Nature Reviews, Drug Discovery, Volume 11, March 2012, pg 191